e-ffective - CPA, CPL, CPC, and CPM
It's been a while since I have been quoted or interviewed, so I figured it was time to answer some reader mail/questions. I had been getting inquiries for a while on how to calculate the familiar cost models used in online advertising - CPA, CPL, CPC, and CPM, but once I posted the formulas the questions started to change in nature:
"What does the 'e' in front of CPA stand for in eCPA or eCPL?"
"I know my CPC or CPM, but how do I calculate/project my eCPA or eCPL?"
"I'm a publisher, someone offered me a CPA or CPL deal, how do I calculate my eCPC or eCPM?"
So I'll start at the top, the "e" in front of any of these cost models stands for "effective", and it is used to determine what price you are paying per lead, per acquisition, per impression, per click when running an advertising campaign on another cost model. Effectively, you back into your metric when you are running a campaign based on a cost model that is not your ideal or target situation.
So to simplify, you are an advertiser that prefers to advertise on a CPA basis, but in this ad market it is becoming more and more difficult to find CPA advertising opportunities that will really drive quality volume for you, so you decide to buy advertising on a CPM or CPC basis. You may have a target CPA of say $25 or $30, but when you run your impression or click based advertising campaign, you need to figure out what your eCPA really is. So you bought 1,000,000 impressions at a $5CPM, the advertising ran, it generated a CTR of 0.60% (or 6,000 clicks) and you generated 125 acquistions or sales at a Conversion Rate of 2.083%. Your media cost was $5,000, what was your eCPA? To solve this equation, you take your media cost, and divide by the number of acquisitions to determine what your eCPA was, in this case it ended up being a $40eCPA. Although this is higher than your desired target of $25-30CPA, it is still a decent source of acquisitions that is coming close to your target. Because your conversion rate is pretty good on this source of traffic, you may be able to back into a CPC to make the deal more favorable to you. To determine your eCPC, take your media cost, and divide that by the number of clicks achieved, the resulting eCPC is $0.83, if you can negotiate a $0.60CPC on a subsequent ad deal and maintain your conversion rate, you would only spend ~$3600 for the same number of clicks (and impressions) thereby reducing your eCPA to $28.80.
In the converse situation as a publisher, you may have some unsold inventory that you want to run on a remnant basis, and an advertiser is offering you a $50CPA to run in either banners or email. In order to figure out how this would work out on an eCPM basis, you'll need to know what the advertiser's CTR and conversion rate is. If the advertiser has similar CTR and Conversion rate stats as the above example, with a CTR of 0.60% on banners, and a Conversion rate of 2.08%, on those same 1,000,000 impressions, you would have generated 125 sales at a $50CPA, yielding a commission payment of $6,250, and a resulting eCPM of? To solve this eCPM equation, take the commission payment of $6250, and divide by the number of impressions delivered/1,000 (because CPM stands for Cost per Thousand Impressions). The result is a eCPM of $6.25. To solve for the eCPC, divide the commission payment of $6,250 by 6,000 clicks, and your eCPC is $1.04.
Hope this helped! If you have any more questions or need further clarification? Please email me - steve [at] mediabuyerforhire.com
posted by Stephen D. Kempisty @ 8:45 AM
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